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Buyers Beware! Read the Fine Print in Your Distributor's Forms

Posted December 12, 2016
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Words in contracts almost always mean something, especially in distributorship agreements, invoices and purchase orders. The thing is, you never really find out what they mean until there is a dispute. In a recent federal court case in Connecticut, (read the decision here) the district court transferred a case from Connecticut to South Carolina because of a forum selection clause (or choice of venue, meaning the location of the lawsuit) in a credit application that also appeared in the fine print on the reverse side of invoices. But in this case, the party that won the decision (the manufacturer) wasn't even a party to the contract. The buyer, a small Connecticut company, had filled out a credit application with the distributor of chip readers, and then started purchasing the readers. But by signing the credit application the Connecticut company agreed to bring all disputes only in South Carolina courts. Not any dispute, but all disputes, even with the distributors "affiliates." That same provision appeared on every invoice the Connecticut company subsequently paid.

You guessed it.  Defective chip readers. And a lawsuit. In Connecticut. Against both the distributor and the manufacturer. A classic "battle of the forms" under UCC Section 2-207. The Connecticut company objects to the manufacturer's motion to transfer the case to South Caroline. We never read the invoices they say!!  We are soooo surprised!! Tough luck said the judge, because the terms of the distributor's invoices said basically "our terms control the contract," and the Connecticut company didn't object to those terms. If the Connecticut company wants its day in court it must go to South Carolina or convince the Second Circuit (the appellate court for the Connecticut federal district court) that the judge was wrong.  Good luck with that.

LESSON LEARNED: You need to read the terms and conditions that show up in purchase orders and invoices. Know what you are signing.  And have forms drafted to protect your business.  They may just change the outcome of a case like this.  If the Connecticut company had a purchase order with terms that objected ahead of time to any terms in the distributor's invoice, its Connecticut lawsuit may still be alive. Now it is facing greater expense, litigating in a state far away, and may even just abandon the claim completely.

 

About the Author

Business Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.